European Stocks Pullback Amid Geopolitical Jitters: Next Steps...
Mike Zaccardi, CFA, CMT | Mar 01, 2022 12:07AM ET
This article was originally published at TopDown Charts
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Valuation/sentiment reset makes the case for an overweight to the Eurozone markets
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Even on a sector-neutral valuation approach, European stocks are cheap vs the US
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Bearish risks include wavering earnings revision momentum, an uncomfortably hot inflation surprise gauge, and of course geopolitics
European equities had one of their best days since May 2020 on Friday. The region surged 3% as global stock markets recovered from sharp losses earlier in the week. At the morning lows on Thursday, Vanguard FTSE Europe Index Fund ETF Shares (NYSE:VGK) was a smidgen above $60—it closed the week near $64. For perspective, its 52-week high is just under $71.
Was the washout, caused by fear related to the Weekly Macro Themes report also investigates what’s happening with the EUR/USD and the US dollar itself. Currency analysis is crucial when allocating abroad.
Bottom Line: We reiterate our bullish stance on European stocks, but reduce our conviction. We assert that the Euro Stoxx 50 pullback off its Q4 2021 high helped reset valuations to compelling levels. Unfortunately, bearish earnings revisions and upside inflation surprises, not to mention the war in eastern Europe, casts some bearish clouds for the group of stocks.
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